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Bankruptcy worries push down San Bernardino bond ratings

July 12, 2012 | 11:38
am

Following the city of San Bernardino’s decision to seek Chapter 9 bankruptcy protection, ratings agency Standard & Poor’s downgraded the rating of some of the city’ bonds from investment-grade to junk bond status, citing concerns about the city's willingness and ability to continue paying down its debt.

The rating on the city’s series 1997A lease revenue bonds was dropped from BBB+ to CC on Wednesday, with a negative outlook.

In a report accompanying the downgrade, analysts cited the city’s decision to file for bankruptcy as well as concerns that cash flow problems “could cause the city to fail to meet its ongoing financial obligations during the next three months.”

The city’s annual debt service on the bond amounts to about $947,750 a year paid semi-annually. The next payment is due Sept. 1, according to the report.

The city’s other general fund-backed debt totals $68.4 million. Standard & Poor’s had previously downgraded the rating of the bonds in April of last year, citing concerns about a “substantial drop” in the city’s general fund reserves resulting from declines in sales and property taxes.

The report accompanying that earlier downgrade noted the city’s 2009 audit showed a $13.4-million general fund deficit and a reduction in reserves from $15.5 million to $2.48 million.

Photo: The San Bernardino City Council on Tuesday night decided to seek protection from creditors, becoming the third California city in less than a month to head to U.S. Bankruptcy Court. Credit: Irfan Khan / Los Angeles Times